Stride Inc (LRN) 2015 Q4 法說會逐字稿

Greetings and welcome to K12 2015 fourth-quarter and year-end earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mike Kraft. Thank you. You may begin.

Thank you and good morning. Welcome to K12's fourth-quarter earnings call for fiscal-year 2015.

Before we begin, I would like to remind you that, in addition to historical information, certain comments made during this conference call may be considered forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and should be considered in conjunction with cautionary statements contained in our earnings release and the Company's periodic filings with the SEC. Forward-looking statements involve risks and uncertainties that may cause actual performance or results to differ materially from those expressed or implied by such statements.

In addition, this conference call contains time-sensitive information that reflects management's best analysis only as of the day of this live call. K12 does not undertake any obligation to publicly update or revise any forward-looking statements.

For further information concerning risks and uncertainties that could materially affect financial and operating performance and results, please refer to our reports filed with the SEC, including, without limitation, cautionary statements in K12's 2015 annual report on Form 10-K. These filings can be found on the investor relations section of our website at www.K12.com.

In addition to disclosing financial results in accordance with generally accepted accounting principles in the US, or GAAP, we will discuss certain information that is considered non-GAAP financial information. A reconciliation of this non-GAAP financial information to the most closely comparable GAAP information was included in our earnings release and is also posted on our website.

This call is open to the public and is being webcast. The call will be available for replay for 30 days.

With me on today's call is Nate Davis, Chief Executive Officer and Chairman; Tim Murray, President and Chief Operating Officer; and James Rhyu, Chief Financial Officer. Following our prepared remarks, we will answer any questions you may have. I would like to now turn the call over to Nate. Nate?

Thank you, Mike, and good morning, everyone. Thanks for joining us on the call today.

I am pleased to report that K12 ended fiscal-year 2015 with solid financial results, both for the quarter and for the full year. Excluding certain charges recorded in the quarter that James will review with you later, we slightly exceeded our guidance for both revenue and operating income.

Revenue for the year was $948.3 million, up 5.1% year over year. We recorded revenue growth in managed public schools programs, despite a slight decline in enrollment. We posted strong double-digit revenue growth in the nonmanaged public school programs, and importantly, these nonmanaged programs produced consistent double-digit revenue growth each quarter this year. This is a testament to the strength of that business and to the underlying industry trends.

In addition, we delivered solid double-digit gains in our international and private-pay schools, as well as our institutional software and services.

Operating income for the year, excluding the charges recorded in the fourth quarter, was $43.7 million, down 19.9% year over year. This decline was a result of our ongoing commitment to investments we believe will deliver better academic gains. These investments include hiring more teachers with better training and professional development and implementing student and family support programs that focus on improving academic results.

Capital expenditures were $76.5 million for the year. The majority of that went toward upgrading software and curriculum to improve the student online learning experience. Notably, we produced $46.5 million in free cash flow and ended the year with nearly $200 million in cash on our balance sheet.

These results are precisely aligned with the guidance we provided last fall. Performance in the quarters and for the full year consistently met or even beat the guidance we provided.

Now let me turn to some commentary on business operations for the year. First, this was a breakout year for our institutional business, FuelEd. As we anticipated last year, the adoption rate at which school districts nationwide are integrating online components into the classroom is escalating. FuelEd is a great alternative for school districts that want online options to range from a single remedial course to a full-time online school. This business leverages all of K12's curricula to offer the largest digital catalog that is aligned with national and state standards in the industry.

FuelEd provides schools with a consolidated user experience through its family solutions that we put under the PEAK brand. Schools can enroll and activate students, assign courses and teachers, and then manage the learning experience with easy-to-use reporting and analytics. They can either create and load their own content from non-K12 sources and integrate all that content using the PEAK platform.

As a result, FuelEd revenue was up more than 17% on a pro forma basis, including nonmanaged and institutional software and services.

Full-time enrollments increased 38%. Importantly, we saw growth from existing schools and expanded the number of new districts' nonmanaged programs. Our investments in the PEAK platform, curricula, and personnel are delivering solid results.

FuelEd online course enrollments were up over 28%. This year's gains were a result of higher usage per student for district customers, as well as adding new schools onto the PEAK platform. And moreover, we expanded third-party partnerships available through PEAK to increase the suite of offerings available. These include English Language Learner, or ELL; LearnBop for a math degree; PresenceLearning for online speech and occupational therapy.

We have mentioned in the past that we will partner or acquire new technology to continue developing our product line, and these moves demonstrate our seriousness about continuing to enhance our capabilities.

FuelEd growth can also be driven by the number of states or school districts in which we are preapproved to provide services. This year, both Chicago and Philadelphia public school districts designated FuelEd as a preapproved curriculum provider. This will allow schools within these districts to place orders directly with FuelEd.

In addition, the University of California expanded the number of courses approved for the state by 40%. FuelEd has more than -- more approved courses than any other online or blended provider in California. This is especially valuable because many other states and school districts view California's endorsement as sort of an informal seal of approval.

Net net, we are very excited about FuelEd. It is on a strong growth path, and while we have to wait until the fall to see how nonmanaged enrollments come out for the year, we believe FuelEd is a key driver for our growth going forward. It remains a business development priority and we will seek to continue to grow FuelEd both organically and inorganically.

Now on the managed public schools, we have been changing and improving our marketing strategy and we have continued expansion into existing and new markets, both of which will help ensure the long-term economics of our business. We are aggressively leveraging data analytics to hone in our marketing efforts and we are investing to attract those students who are most likely to succeed in an online environment. This is a concerted effort on how we inform families about their online education options at K12 partner schools.

Our focus on student success versus student volume slowed near-term growth in enrollments in FY15. However, we believe this messaging that we have now begun to use will result in a student body that is better matched to our core curriculum strengths and therefore substantially more likely to gain academically over time and stay with the program longer. The results will translate into the appropriate balance between enrollment levels and financial return for our investors.

At the same time, this year we succeeded in expanding our network of K12 powered schools. We grew our existing presence in Colorado. We opened schools in the state of North Carolina and Maine, and in the next fiscal year we look to expand into states like Alabama, which passed legislation this year to allow for the formation of a statewide online charter school. Growth prospects also look good in some other states, including Virginia, New Jersey, and Connecticut.

As you know, this process is often a multiyear effort, so we will have to keep you informed as progress happens. However, it bears repeating we continue to see solid demand for managed programs, which remain the cornerstone of our business.

During this year, we continued to invest in improving academic outcomes. A successful academic outcome for each and every student is at the heart of the K12 mission. We remain focused on that and a multiyear program to improve teacher hiring, compensation, supervision, observation, and professional development. The goal is to develop K12 in conjunction with our partner schools into a center of excellence for online teaching.

A parallel program focuses on developing our schools' administrators, principals, and instructional coaches. This effort begins with recruiting talented, experienced educators and provides a comprehensive training, professional development, and coaching program that continues throughout their tenure with K12.

Fourth, to improve the overall online experience for students, families, and teachers, we invested in our curriculum and systems architecture. A major progress step this year was the rollout of the new K12 online high school experience for the upcoming school year. You have heard me mention this in the past as a partnership with Desire2Learn.

This was an intense 18-month effort that included migrating and upgrading more than 700 courses. This new K12 online high school will benefit more than 35,000 students and teachers. The platform takes the online learning experience to a new level by empowering students, teachers, and learning coaches to find what they need when they need it, and of high importance, it allows us to operate more easily on mobile platforms, a thing of the future.

Most importantly, it will also help us achieve better academic outcomes with instant access to actual student data.

Also this year, we began to see the benefit of almost two years of investment toward improving student performance. Test scores in the 2013-2014 school year showed proficiency gains over the prior school year and we've described this in our annual academic report, which was published earlier this year.

There was stable performance in reading and encouraging performance and improvement in mathematics. We are proud of our teachers, our administrators, and our students as they put in tremendous effort to improve our results.

In summary, we met or exceeded the goals we set for the year. Our institutional business is growing, as we predicted, with three consecutive quarters of growth and full-year revenue over $70 million. Our updated marketing strategy is designed to attract these students who are best suited for our program in an online environment.

The K12 managed-school footprint is growing. Moreover, we anticipate our ongoing effort with legislators and independent school boards will further expand the number of schools we support in current and new states. K12 private-school revenue grew 16% year over year. Academic results this year are now trending in the right direction.

Key pieces of the K12 technology platform and curricula were significantly improved. We have begun to build on a future vision of the next platform in a multiyear program that will keep us at the forefront of educational technology, and we ended the year with almost $200 million in cash. We are in a strong position to capture both strategic opportunities, as well as inorganic growth.

I'm excited about where K12 ended the fiscal year. I believe we are in a great position to continue growing financially and fulfilling our mission as an academic leader in online and blended education.

So thank you very much for your time this morning, and now I will turn the call over to James Rhyu, who will cover financial results. James?

Thank you, Nate, and good morning, everybody.

As you saw in our press release, we reported net income for the year of $11 million. Included in this were $28.4 million of charges that I'm going to describe in more detail, but I wanted to point out that they are not part of core operations for the fiscal-year 2015. Excluding those charges, we would have reported net income of $29.4 million and operating income of $43.7 million.

Let me start by giving you some color on the $28.4 million in charges. We had a confluence of things happen in Q4 that precipitated these charges. First, we had invested in previous years in a UK curriculum that we realized was not going to give us the return we wanted. So we sunset that, along with some other products, as we switched to our new LMS. This resulted in a charge of approximately $3.1 million.

Second, we made some decisions with regard to the computers and related peripherals that are distributed during enrollment season. Some of the equipment has changed and we are no longer going to distribute or refurbish certain devices, and we therefore decided we needed to write off approximately $6.4 million of inventory.

Third, in an effort to improve some operational processes, we will no longer be using some older internal software that was developed years ago and never reached its proper potential. So we're going to write off approximately $4.8 million of those assets.

Fourth, we updated our estimate of the collectability of some of our receivables and we have recorded a charge of $10.7 million associated with schools that closed this year and could not pay us, a funding issue in one state from a couple years ago that we're trying to work through with that department state of education, and the interest on one receivable.

These were one-off type events that we do not believe are indicative of the overall strength of our AR balance, which remains solid. In fact, our DSOs improved year over year by approximately 5 days.

Finally, we also recorded about $3.4 million in severance-related payments in the quarter.

In total, $9.6 million of the charges have been reported in cost of goods sold; $15.7 million have been reported in selling, administrative, and other expenses; and $3.2 million in interest and other expenses.

For your reference, we have provided additional information at the end of our press release that shows our income statement, excluding these charges, on a line-item basis. I also want to mention that all but about $0.5 million of the $28 million are non-cash charges.

So with that as background, let me provide some further insight into our fourth-quarter and full-year results. My comments will exclude the charges I just described, as well as the charges we took in Q2 of fiscal-year 2014 and the businesses we sold last year.

Revenue for the quarter was $235.7 million, an increase of 3.1% over the year-ago quarter. For the full year, revenue was $948.3 million, which represents a 5.1% increase over the prior year. The growth in the quarter was largely driven by increases in our institutional business, FuelEd, and our international private-pay businesses. On a full-year basis, we saw growth across all segments of our businesses.

Revenues for managed programs were flat for the quarter, with a 2.3% increase in revenue per enrollment offsetting a similar decline in enrollment volume. On a full-year basis, managed program revenue rose 2.5% year over year. This was in contrast to an enrollment decline of 3.9%.

As we have seen through this fiscal year, increases in revenue are resulting from positive revenue per enrollment trends that are more than compensating for the enrollment declines.

The revenue per enrollment trends are related to a combination of factors, including school mix, an improved funding environment in some states, and other variables. While we continue to work with states to improve funding for our partner schools, we are cautious about the continuation of current revenue per enrollment trends and will watch them carefully through the next year.

Nonmanaged program revenue rose 27.2% in the quarter and 36.4% for the full year to $8.3 million and $39.3 million, respectively. These increases for both the quarter and the year were driven by enrollment gains. This is the fourth quarter in a row we posted solid double-digit revenue gains in nonmanaged programs for both enrollment and revenue.

We continue to see positive trends in the market for nonmanaged programs as we move forward into the new fiscal year.

Institutional software and services, which include core software, technology, professional, and other educational services sold by our FuelEd team, posted revenues of $13.1 million for the quarter and $48.8 million for the year.

This is an increase of 10.5% for the quarter and 9.6% for the year. This is the third quarter in a row we have posted double-digit gains in this business. We continue to see product investments we have made in our institutional business pay off. We believe we will continue to see this business grow into next year as school districts continue to adopt virtual education options and as K12 continues to introduce additional products and services.

Our international private-pay schools, revenue rose $4.1 million or 46.5% for the quarter and $11.1 million or 31.3% on a year-over-year basis. We continue to see strong performance in our Keystone and iCademy private schools. These schools posted gains of 20% and 18%, respectively, and 15% and 21% for the year. We are pleased with the trends we are seeing in this business and will look to expand our private-school business over time.

Gross margins declined to 33.2% in the quarter. This is in line with our typical seasonal trends for the fourth quarter. The full-year margin of 36.9% is in line with our increased investment in academics and our operating income guidance for the year.

Selling, administrative, and other expenses declined 11.2% to $65.1 million for the quarter and were flat on a full-year basis and declined as a percentage of revenue by about 150 basis points. We will continue to manage these expenses and invest where we see the best return.

Product development expenses for the quarter were $4.3 million, compared to $2.2 million in the prior year. For the year, they increased 5.8% to $14.4 million. The increase in the quarter and the year reflect investments we were making in our product, including our new LMS Nate referred to earlier.

Operating income was $8.9 million for the quarter and $43.7 million for the year. The declines versus last year for the quarter and for the year are consistent with our strategy to invest in academics, but also above the guidance we had previously provided.

Turning to some other items, free cash flow was $43.6 million for the year, compared to $50 million in the prior year. We ended the quarter with cash and equivalents of $195.9 million, which was essentially flat from the prior year. This includes investing $26.5 million to repurchase shares earlier in the fiscal year.

Net cash provided by operating activities for the year was largely flat at $120 million. Even with increasing revenues, Accounts Receivable declined slightly, which provided for an overall improvement to DSOs.

CapEx, as we have historically defined it, which includes curriculum and software development, computers, and infrastructure, was $76.5 million for the year and is in line with our guidance. We saw a $9.8 million increase in software and curriculum tied to projects like our new high school running platform largely offset by a $9.4 million reduction in expenditures for computers. The reduction in the computer CapEx is the result from some operating improvements in our reclamations program and the declining cost of hardware on a per-unit basis.

Our tax rate for the year came in slightly better than expected, at approximately 36%.

In summary, we continue to invest in product and academics across our businesses. We believe these will provide the greatest long-term return for our shareholders.

Thank you for your time today and I will now hand the call back over to Nate.

Thanks, James. I think that we are finished with our prepared remarks, so we can move into Q&A, David.

(Operator Instructions). Corey Greendale, First Analysis.

So congratulations on the progress during the year. I just had a few questions. So, first, I have to ask. I know you're going to give guidance later this fall, but any indications you can give on how the managed and nonmanaged enrollment is trending relative to this time last year?

(laughter). You know, it's always interesting. That question gets asked many ways and I appreciate you asking, Corey.

We are pleased with the results, but it would be inappropriate for me to give any kind of indications where we are going. I can only say that we think the new marketing program is working. It certainly is a different kind of program. It expects fewer leads, but greater ability to convert students and students who are going to stay longer.

And so far, we are seeing the things that we wanted to see. But it is still in the middle of the season, and so it's hard to predict where we will end up for the full year.

Okay, I had to try. You met my expectations on what you can say now, but let me (technical difficulty) I think you can probably more directly address.

So on the institutional software and services business, James, you gave a gross number that, first of all, I missed and, second of all, it sounded like it was higher than the reported number. Were you excluding divested businesses from the year-ago number?

Yes, it excludes the divested businesses in the year ago. That's correct.

All right.

And I, just to reiterate, if you didn't hear, my comments included revenues for institutional software and services of $13.1 million for the quarter, fourth quarter, and $48.8 million for the year.

Okay, and you said it was up 10%?

10% for the quarter and 9% for the year.

So that is good growth, but it has decelerated. I think last quarter it was up more than 30%, ex divested business. Can you just talk about the moving pieces there?

Yes, you will remember last quarter the year-over-year comp was very soft, so last year, fiscal-year 2014, Q3 had institutional business at around $12 million, which was the lowest level we had for the year.

Okay. And then, just -- again, not asking for guidance here, but I saw some data recently that suggested overall school spending on instructional materials was up 9% this year, somebody said nice -- recovering nicely. So can you just talk generally about what your long-term thoughts are on the growth rate of that business and whether you expect to grow above market growth rates or in line?

Tim is here, and so -- Tim is managing that business. I'm going to let Tim answer that and I will probably chime in as well. Go ahead, Tim.

Corey, we are seeing the same things you are in terms of improved environment for spending, in particular increases in spending in the digital environment.

Our goal is to grow faster than the industry, so to take share in this market. As we look at our current pipeline, our pipeline is up well over where we were at this time last year, especially for new customer opportunity, so we are very, very comfortable about how the market is developing here and our position in it.

And are you mostly using a field sales force or inside sales, and can you talk about just the size of your sales force relative to this time last year?

I don't want to give you specific numbers for competitive reasons, but our sales force is about the same size as last year. Think of it as being two-thirds external salespeople, feet on the street, one-third inside sales. A relatively small, but long-standing, footprint with a couple of independent resellers who have been with us for a long time.

Our productivity, most of our growth this year has been achieved through increases in sales productivity, as opposed to increases in sales force.

And is that more driven by process or sales force maturity or by product set being larger?

I think in particular these last couple of quarters we have really focused on the entire sales process, sales management systems, so I would say we have had benefit of tenure. Our sales force has matured, although many of our salespeople have been with us a good number of years and have a great amount of experience in this industry. So it's both tenure, as well as sales process and sales execution.

And Corey, this is Nate speaking. I had asked Tim to focus on making sure that we grew the productivity of the sales force, and once we saw that, we would be able to expand it.

So just this year, we are going to -- going into FY16, we are going to expand the sales force by about 20%, based upon the fact that I have now seen us improve the sales productivity, so I think we ought to go into more and more markets and we are going to try to do that with a greater sales force, so we are increasing the size this year.

Okay, and I hope you don't mind my spending a little bit of time on this business, because I think it is an interesting one. So with that in mind, do you need to have the salespeople in place -- salespeople you hire starting now, will they more impact fiscal 2017 because of the timing of the selling season or could they still impact 2016?

For the most part, they're going to impact fiscal-year 2017, by the time they are trained and they go through the bookings.

But remember that the sales for the next fiscal year will primarily happen in the second half of this fiscal year, so the sales activity that impacts 2017 will all happen in the spring. That's when schools are making decisions, a little bit into the summer, but primarily in the spring. So, we have to get the folks on board now to be able to impact that selling season.

Okay, I'm going to ask one more and that I will jump back in the queue if my other questions don't get answered. My other question is -- I guess I will ask James. Can you just talk a little bit about how the mix shift, which I think will be, just given what's happened with Agora, more pronounced potentially next year, what that does to your CapEx relative to your -- I am assuming that some of these other businesses are less capital intensive because of computer purchases in the managed school business, but can you just confirm whether that's right and directionally talk about what happens to CapEx with the mix shift?

Yes, so let me try to address it in a couple of ways for you, Corey.

First of all, Agora specifically doesn't change, really, our capital expenditure makeup significantly. It will have some impact, but it is not really that dramatic.

Secondly is the investments that we are making, which are multiyear investments, and Nate referred to one of the big ones, which is really Desire2Learn, which we are rolling out for high school now, we're going to migrate middle school and then elementary school in the coming years. So those investments are multiyear investments. I don't think that at least for the next year, while we -- we're not giving guidance yet for next year and we haven't finalized our guidance for next year around CapEx, I wouldn't see a dramatic shift.

We have seen now about three or four years of pretty consistent CapEx. I would expect to be in that similar range in the coming year.

Thanks. I will get back in the queue.

Jeff Silber, BMO Capital Markets.

It is Henry Chien calling in for Jeff. Can you talk a little bit more about the marketing program you mentioned? What is the changes and what kind of new type of students that you're looking for? I'm just trying to get a sense of how that also impacts your enrollment growth.

Yes, that's an important question and I will be as specific as I can without giving all my competitors who jump in our calls and listen in.

Our focus has been to try to move to more digital communication, more social media, more viral communication with prospective customers, number one. And number two, to make sure that they have a chance to understand what they're getting into earlier and earlier in the season. So the more they understand the program, the more they understand the work that's required and how this fits their student, the better chance they're going to have when they log on.

In addition, our marketing programs trying to focus on not just helping them get into the queue for the coming enrollment, but also helping them make it through the queue faster, meaning there is more self-enrollment process there. Instead of us always calling somebody and talking to them on the phone, we give them a chance -- a button that basically says enroll now. It gives them a chance to go through a self-enrollment process. Processes documents faster. It makes the entire process simpler. That's a part of what we do as well.

And then, lastly, we try to have a very strong -- and this is the end of the marketing process, beginning of the school operations process, a very strong -- what we call strong start process, which helps the students and the parents as they migrate from being an enrollment that did the enrollment online to actually getting all their material, getting a computer set up, getting their courses set up. So we want that to happen earlier -- and getting introduced to their teachers earlier.

So that entire process, from how we reach them through our marketing programs -- and, by the way, the last thing is the messaging. You have probably seen a new set of commercials centering around a campaign that we call Uniquely Brilliant, communicating to the parents that this program is all about the individuality of your student. It is not like sitting in a classroom of 35 students and everybody is at the same pace. This really is about your child's unique speed.

And so, those messages are in our marketing campaign as well. So how we reach them, the messaging we deliver, and how we get them enrolled all are part of the new programs we introduced.

Got it. Okay. Thanks for the color.

So just looking at the managed program enrollment, it looks like the year-over-year declines are improving or getting less worse pretty nicely. Just trying to understand with the Agora impact, can we still -- without giving explicit guidance, is it -- are we nearing the potentially turning around for growth maybe in 2017 in the managed program enrollment?

I am not sure I got all of your question, but I think you are asking when Agora goes out of the program, are we seeing a potentially growth cycle in managed (technical difficulty) schools? Is that what you are asking?

Yes, exactly.

Okay, so, again, without giving guidance, I would say one of the reasons I mentioned the number of states that are coming on and some of the activity we are seeing in states like Alabama, a bill that is passed in Virginia that just now has to go through the funding process. We're seeing some trials in New Jersey. We are seeing Connecticut begin to open up a little bit. North Carolina, of course, is now on.

So the answer to your question is we are seeing more states. We're also seeing more schools within existing states. We haven't talked a lot about our pre-readiness program. A pre-readiness program gets another curriculum that students, we think, will benefit from.

So all of those things together make us optimistic about the future. It is difficult for me to tell you that there is going to be a specific amount of growth in FY17, but you can see, I think, from the tone in my comments and from the specific states I mentioned that we are optimistic about the kind of growth that can happen in this industry. Demand is there.

Got it, okay. And if you could -- just last question, could you touch a little bit upon -- your revenue students have been increasing in part. I know you mentioned in the past basically or essentially a positive or a favorable funding environment. Can you talk a little bit about what your expectations are for 2016 on that front from the funding side?

Yes. I will remind you that some of the funding increases come along with expenditure of commitment, so states might increase funding for specific programs, like they want you to put more money into teaching or they want you to put more money in the areas, but that notwithstanding, we do see a continually strong economy and when the economy is strong, one of the things that all communities ask for is let's put some money into education. Every politician stands up and says let's put more money in education.

So we think that the public schools, as well as the charter schools, benefit from a stronger funding environment, so we continue to see a positive funding environment. It may not be as strong as the 6% we saw this year, but overall we definitely see a strong funding environment.

Okay, thanks for the color.

(Operator Instructions). Chris Gassen, Faircourt Valuation.

The first question relates to the charges that you took in the fourth quarter for the reserves and write-downs related to end-of-life products and the reserves for the Accounts Receivable. Would you consider these to be very unusual types of charges or are these the types of charges that you would expect to take from time to time on an ongoing basis because of the nature of the business that you are in?

So I think -- we evaluate every period, every quarter, off the AR balance sheet generically all of our asset classes. And the accounting rules help dictate when we would take charges.

The nature of those two charges for this quarter, the receivable pieces of it were pretty unusual. I won't comment on the exact frequency, but we really haven't seen these types of receivable write-downs in a long time, that I am aware of, so -- dating back to prior to my joining the Company.

So I wouldn't -- I don't really think that these are certainly not common events. We don't really see -- we think that the quality of our receivables is very high. We actually had some very unusual circumstances.

One of the biggest components of this actually relates to an event that happened back in 2013 with this particular state that they had a certain, I'll say, funding snafu. So, I certainly don't see those as being things that we see happen very often.

On the asset write-down pieces of it, we evaluate the longevity of our curriculum. In general, what we have seen is we depreciate or amortize our assets over what we think is an appropriate period of time, meaning as we amortize them, they get fully written off in the time that we use them, and we don't see a lot of these types of charges.

So, again, while I won't comment on the frequency of them, we certainly don't think that these are a thing that -- they're not happening all the time and we try to manage our balance sheet and the assets, I would say, for the useful life. But we certainly do the appropriate accounting determinations every period.

Well, let me ask a more general question. With advances in technology in general, has it been your experience that the actual economic or useful life of your software products is greater or less than what you originally anticipate when you start your depreciation schedules?

So I think in general we find that they are greater, and generally speaking, I would say not substantially greater, but we tend to -- I will give you the best example, actually, which is something that we are changing over, but the LMS that we invested in probably upwards of 10 or 12 years ago, which we continued to develop and maintain, et cetera, over the course of those years, is something that we continue to use today.

So that's probably one of our singular biggest investments. Our curriculum, which again we started investing in over 10 years ago, much of that curriculum and many of those assets we continue to use to this day, even though they are depreciated.

Chris, one of the things that -- and James is 100% right. I believe that if we look at all the assets we have in place, they have actually lasted longer, generally, than the periods that we have depreciated them.

But one of the things that happens with every company is when you start new technology approaches, which the Company started several years ago and then we decided to go a different direction. The main direction change that we made was we decided we would lease or license more content and especially more technology than we built ourselves.

We weren't sure that was going to work, and so we continued a set of software that we were using until we got the desire to learn implementation in place. Once that went in place, some of the programs that we have started some years ago, we didn't really need any more, and so that was an event that occurred once we actually started using the Desire2Learn implementation.

So, some things are driven by the change we made and actually a change that started its implementation in this quarter.

Not to get too far into details, but I am somewhat curious. When you were -- when you set up a depreciation or amortization schedule for curriculum, do you make a distinction between, let's say, the curriculum for math, which would not likely change very much from year to year or even for long periods of time, versus other curriculums that would require significant revisions on short-term basis, such as computer technology, those types of cases?

Sure. I think the short answer to your question is yes. We do try to track it at a reasonably project type of level.

In your specific example, it is not -- we don't really have just, let's say, one math. We do state customizations and things like that in order to scope and sequence things differently. So when we invest in things, it is probably a little less, I will say, straightforward than a simple here is a simple math course. So we look at that at that project-level basis and track it that way.

Okay, but the sum of substances is that you would say, then, that you guys spend a fair amount of, let's just say, time and effort in trying to come up with a depreciation or amortization schedule which you would think would be as accurate as possible, given the circumstances?

Yes, and it depends on not just the circumstances, but the type of asset. So you mentioned computers. They have a much shorter life and different life than will math courses, which will be a different life, by the way, than the technology we use to sell to public school districts, the PEAK platform and the things we do there, which would have yet a different life than some of the information we use, for example, for a student information system.

All of the systems, each one is looked at on a very specific basis to say how long do we think this is going to last, given the technology that is in the marketplace, given technology changes we are making.

Okay, that would lead to my last question, then, related to your capital expenditures. Do you have a budget that you would be willing to share for the next fiscal year for property equipment, capitalized software, capitalized curriculum? And where do you see the longer-term trend in terms of the amount of money that you're going to need to remain competitive in the business?

Chris, these are all great questions. I think the first piece of it is we don't yet -- we are not yet providing guidance for fiscal-year 2016, so we don't have any numbers for you for that.

Longer term, I think we have a belief that we are investing now over a certain cycle and that longer term we do actually think trends will go down, but we haven't provided any specific guidance around the time frame of that longer term and how much we think it will go down. But yes, we do think it will go down.

Why so?

Well, because I think we have a certain set of investments that we are doing now. Nate referred to a couple of these in his remarks.

Pivoting to a new LMS is a big one. That is a fairly significant investment this year. It will continue into next year, and so I think we will -- as that investment matures over the next year or two, that significant investment will actually come down.

Okay.

And we will provide -- and I think this may be the first time, at least in my experience, that you have come onto the call, so our normal cadence will be that we'll provide some greater guidance come October when we have enrollment numbers, and at that point we will give some better guidance around CapEx as well.

Thank you very much.

Corey Greendale, First Analysis.

Thanks for taking the follow-up. I will just ask one quick follow-up, which is you are continuing to generate cash nicely and, Nate, I heard you talk about inorganic and organic growth. It was about -- I think it is still about a year ago you were repurchasing shares. Can you just talk about whether a repurchase is potentially on the table and just how you are thinking about potential uses of cash?

Well, the uses of cash would be share repurchases, dividends, CapEx, internal CapEx programs, as well as, obviously, acquisitions. And I would say that we believe that there is opportunities in the inorganic market to acquire. We believe that investing in our own capital programs is a smart way to grow the business. We see a number of improvements we want to make in the business and that would be the two places we would spend cash.

We do not see at this point in time a need to do dividends or a need to do a share repurchase program. The Board always looks at these things every year; we have the conversation and then we decide based on the times. Right now, though, the view is that it is more important to put this cash into the areas I just mentioned. So there is no plans for a share repurchase on that basis.

Very helpful. Thank you.

Any other questions, David?

There are no more questions at this time. I would like to turn the call back to Nate Davis for closing remarks.

I don't have much else to say. I think it was a great set of questions. I appreciate everyone's time this morning.

I would say -- this is probably a paid commercial message to not just investors, but to everybody else -- I am really proud of the team and what they have accomplished this year. It has been a year in which we put a lot of effort into making sure that our culture is focused on students and I hope the investors see that we're building a business for the long term, a business that is strong, fundamentally strong, and sound in its underlying principles. And if you can see that, I think you're going to see that we'll continue to get better and better.

Thank you for your time. I appreciate you listening to us and have a great week.

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